Review of Online Vehicle Transaction Models

Review of Online Vehicle Transaction Models

January 25, 2018 — The Banks Report research has found 21 companies that offer some type of online vehicle transaction solution. In the last four years, companies offering such solutions have exploded onto the scene attracting more than $1 billion in investment money — more than $200 million since July (Not including Fair’s $1 billion plus investment from various sources).

(To read more about the recent investment in the space, check out our 3rd Quarter report on Automotive Retail Vendor M&A Activity).

For the purposes of this report, TBR is not including flexible ownership or vehicle subscription companies. (Click Here to read TBR’s report on flexible ownership solutions). 

Despite the eye-catching investment headlines, these online apps have a long way to go before they truly become viable businesses. Customers still have not yet shown a willingness to complete the entire car-buying process online — with some anecdotal reports of less than 10% of customers starting the process actually completing it.

One reason is due to the complicated nature of the transaction which is driven by incentives, trade, down payment, multiple lenders, titling and registration along with huge number of signed documents the government requires as part of the transaction. Trying to integrate all of these entities into a seamless process that matches the dealership’s selling process is a big hurdle.

Furthermore, there are technology obstacles stemming from the fragmented dynamic in automotive retail. Thousands of vendors, dealers — each with their own business rules and process — and obstacles with data integration — create unique challenges. These solutions are not plug-and-play. Adding an online transaction piece requires a dealer to either completely overhaul current business practices in their BDCs, sales floors and F& departments — or to add a new layer into the mix. That’s a lot of disruption for little immediate gain.

Another critical technology piece — artificial intelligence is only now creeping its way into the automotive retail market providing insights into vehicles and customer behavior allowing for predictive marketing and communication.

Also, dealers are rightfully concerned about the impact online transactions may have on profitability. One large dealer group, after studying online transactions for a couple of years determined transactions completed entirely online negatively impact F&I revenue by as much as $500. Many of the solutions that have launched in the last couple of years disagree saying their data shows per-vehicle-revenue actually goes up by as much as $500 with online transactions. The jury is still out on that question.

Whether dealers decide should make the financial, cultural and human investment into building business processes catering to online customers, remains to be seen, but at the very least, dealerships need to be able to offer a frictionless and experience that allows customers to move between desktop, mobile and the showroom seamlessly. Yes, a couple of buzzwords — frictionless and seamless — but a dealership should be able to capture everything a customer does online letting them pick up in the showroom where they left off in the buying process.

Despite the challenges, investors are throwing millions of dollars into the space and numerous companies are starting to gather the data and write the playbooks for dealers. There will be winners and losers on the vendor side, and we may see some of that start to shake out later this year.

Online Retailers

  • Carvana — Online used vehicle retailer known for its vending machines. It completed an IPO in 2017. The company is in 44 markets now delivering vehicles to 48 states. It has a current market cap of nearly $324 million.
  • Vroom — Online used vehicle retailer (acquired Texas Direct Auto, one of the country’s top selling used vehicle dealers in December 2015). With $295 million in funding ($76 million this year) Vroom is selling approximately 6,000 vehicles a month.

NOTE: TBR believes either of the two companies above could be ideal acquisition targets for Amazon should it decide to move into the retailing of vehicles. Both provide a ready-made distribution infrastructure for vehicles — a critical piece Amazon does not have. Both companies also are able to source inventory. Add to that, the financing relationships and automotive retailing expertise both companies have and an acquisition of either or both companies makes sense.

Online Transaction Solutions for Dealers
  • Drive Motors — Online ecommerce app for car dealers. Publicly traded Asbury Automotive, one of the country’s top 10 largest dealer groups, white labeled Drive Motors’ solution for its Push Start online buying program.  in July secured $5.2 million in seed money in a round led by Bullpen Capital that included Y Combinator, Khosla Ventures, Perkins Coie LLP and Emagen Entertainment Group. Founder Aaron Krane started the company (launched out of Y Combinator) in 2015 to provide dealers with true e-commerce solutions that enable them to sell cars online.  In early fall of 2017, Drive Motors said it was processing 1,000 monthly car orders for dealers, with more than $250 million in annual orders.
  • Roadster — Dealers can white label Roadster’s Express Storefront online ecommerce app. The company pivoted from being a vehicle concierge service to providing technology that streamlines the online buying process for consumers. In July, Roadster added an accessories menu to its storefront solution. It also announced adding powerhouse dealerships Longo Toyota and Paragon Honda as clients last year.
  • WebBuy — Developed by dealers (RimRock Automotive) and designed for dealers, the company is just now beginning to announce itself to the auto retail sector, so expect to hear more from them over the next several months.
  •  TagRail — This company just launched its Digital Retail Platform last week. It’s designed to create a seamless buying experience for customers allowing them to conduct 95% of the process online before coming into the dealership to sign paperwork and take delivery of the vehicle.
  • FastLane — This Dallas-based company was founded in 2016 by Brandon Hall. It announced a $1.5 million seed round led by Eagle Venture Fund in December 2017.
  • MakeMyDeal — MakeMyDeal was developed by Cox Automotive and launched in 2015. The solution allows the consumer to start the deal process online and allows for some back and forth “negotiation” between the dealer and the customer. For Cox, it’s not necessarily a “click and buy now” market today although, it may evolve to that in another 10 years or so. MakeMyDeal’s focus is to maintain the human relationship aspect of buying and selling a car. Expect to see more from Cox this year in the online transaction space as it begins implementing it into its Autotrader platform.
  • Dealer Inspire — Dealer Inspire is a website and digital advertising platform that offers online transaction capabilities with its Online Shopper product. The company recently launched Alex, an artificial intelligence bot as part of its Conversations (chat and text messaging) solution. Keep an eye on this company. It has an innovative culture and is aggressive when it comes to jumping on new ideas and rolling out new solutions.

Online Financing/Fintech Solutions

  • AutoGravity — This mobile and online app matches customers with lenders. The consumer selects a vehicle, then selects a dealership and then applies for financing. AutoGravity presents the customer with four financing offers (all from the lenders used by the dealership). AutoGravity gets paid once the customer buys the vehicle using the financing found using AutoGravity. In 2017, Volkswagen Credit invested a reported (not confirmed) $30 million in a Series B round of financing. In 2016, Daimler Financial invested $30 million into Autogravity in a Series A round. That investment followed a $20 million seed financing from DA Investments (a Daimler investment arm) in 2015 when former Daimler Financial executive Andy Hinrichs founded the company. It’s generated more than $2 billion in financing requests and 1.3 million downloads of its app with more than 1,400 dealers across 49 states on the platform.
  • AutoFi — This mobile app enables customers to secure financing and conduct the entire purchase online. Customers select the vehicle via the dealership’s mobile app. Then they complete the finance application and based on approval, the customer then can select various F&I products offered by the dealership. In states where econtracting is available, customers can sign the documents via the mobile app and then pick up the vehicle. The company announced this month that Chase Auto Finance has signed on to offer financing through its platform. AutoFi  secured another $10 million investment in August, bringing its total to $29.5 million since November 2015. Investors in the latest round, which was a Series A investment, included current partners Crosslink Capital, Ford Motor Credit and Lerer Hippeau Ventures. AutoFi likely will announce several partnerships with other key automotive lenders in the next few months.
  • SpringBoardAuto — This is a direct to consumer online lending platform focusing on the subprime market. It’s now in 22 states. CUNA Mutual Group, which helps credit union customers with investments and insurance, invested in Springboard in 2016.
  • Honcker — This is the industry’s only mobile app devoted to leasing. The platform enables customers to secure a lease via the mobile app. As of last fall, more than 200 dealerships in eight states with approximately 30,000 vehicles listed were using Honcker. The company offers a concierge service delivering the vehicle to the customer. It will also pick up lease returns. In October, the company announced it had secured $3.6 million in seed financing from Evolution Corporate Advisors and Lead Edge Capital.
  • ClearLane — In April, Ally Financial launched this online marketplace connecting customers with numerous lenders. Customers are able to either refinance their vehicles or secure financing on a new purchase. The move stemmed from Ally’s acquisition of Blue Harbor in 2016, which it then re-branded as ClearLane.

Financing/Desking Platforms

  • ELend Solutions — This is an industry agnostic platform with a suite of finance and credit solutions that interact with any of the dealer’s service providers, CRM vendors and lenders. The platform allows dealers to match customers with the right vehicle and the lender with an accurate deal before the test drive is completed (while also incorporating the trade in into the equation).
  • MarketScan — This company was founded in 1988 and has evolved with the market. Today’s platform is able to incorporate all of the variables that go into a lease or financed deal to provide the best terms for the customer while maximizing dealership profitability.

Private Party/Peer-to-Peer Buying and Selling

  • Blinker — Rod Buscher, former president and cofounder of the John Elway dealerships and Summit Automotive Partners, started developing Blinker in 2013 and launched it in March 2016. It’s a mobile app that enables buying and selling among private buyers. The app, which has 150,000 downloads and has processed 3,500 transactions, is available in Colorado, Texas and Florida (where it just launched this month).
  • Shift Technologies — Shift launched as a strict peer-to-peer mobile app but in December 2016 signed an agreement to list inventory from Hertz on its platform. According to the partnership, 20% of Shift’s listed inventory has to come from Hertz. At the same time, the company also reconfigured operations to focus more on inside sales operations. The agreement with Hertz allows Shift to focus less on inventory acquisition — a costly and convoluted process — and more on driving sales through its app. The partnership with Hertz also likely helped Shift land a $38 million investment led by BMW iVentures, bringing its total raised to $110 million. Other investors in the latest round which occurred in the third quarter 2017 include DCM Ventures, G2VP, DFJ, Highland Capital and Goldman Sachs Investment Partners.
  • Instamotor — Until last fall, this was strictly a peer-to-peer mobile app for buying and selling cars. But in September, the company announced it would allow dealerships to list their inventory on the app also. The company launched in 2014 and is available in markets in California and Texas. Cofounder Valentin Gui has a background in automotive retail serving as business development director for the fast growing Victory Automotive Group after graduating from the University of Michigan.
  • Tred — This startup launched in 2012 out of Seattle’s TechStars group, to great media fanfare (partially due to former General Motors chief Rick Wagoner being on the board). Originally slated to deliver test drive vehicles for dealers to customers’ offices or homes, the company pivoted in 2014 to focus on buying and selling cars online. The company has since narrowed its focus to help owners sell their vehicles. The sellers tool is only available in Los Angeles, Portland and Seattle as of now. The company pushes the listings of vehicles uploaded by private sellers to its app to numerous media partners across the industry. Last year, Tred signed a deal with Ally Financial enabling the finance company to offer F&I-related products to customers buying vehicles listed on the app. Between 2011 and 2015, the company raised approximately $2.8 million in investment capital.
  • ebay Motors — Not a new entry in the space — but definitely the oldest, and as a result, often get left out of the conversation. eBay Motors has led the charge on peer-to-peer online vehicle sales since the early 2000’s. But because of its auction-based model, it doesn’t quite fit with today’s new entries that push the ease of transaction. Nevertheless, eBay Motors has built a profitable business enabling the buying and selling of cars online. The question is, what’s Amazon’s next move?

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